Bucketing is Legal in many forms: Why not Legalize Bucket Shops?

By Joel Sumner, Esq., LL.M.
Written in 2005

 
Section I: Introduction

In 1906 the Supreme Court defined a bucket shop as ‘[a]n establishment, nominally for the transaction of a stock exchange business, or business of similar character, but really for the registration of bets, or wagers, usually for small amounts, on the rise or fall of the prices of stocks, grain, oil, etc., there being no transfer or delivery of the stock or commodities nominally dealt in.FN1 In other words, a bucket shop is a place where people gather to place bets on the price movements of stocks or commodities without any intention of delivery.
      
In 1997, a court in the Northern District of Illinois defined bucketing as “a method of doing business wherein orders of customers for the purchase or sale of commodities for future delivery, instead of being executed by bona fide purchases and sales with other traders, are simply matched and offset in the soliciting firm’s own office and the firm itself takes the opposite side of the customer’s orders.”FN2
      
Bucketing, as defined by the Illinois Court and most state anti-bucket shop laws, currently exists in the United States.  Historically, a bucket shop was a physical place where people could bet on the price movements of stocks and commodities.  Modernly, bucket shops as an establishment no longer exists, as they have been outlawed, but otherwise bucketing as defined by the 1906 Supreme Court still exists.  In effect, bucketing occurs when people trade cash settled options, such as index options, or when people purchase certain banking products which are linked to the markets.  Bucketing also occurs when large investors engage in sophisticated transactions that do not leave footprints on the market.  But this kind of bucketing is legal in today’s society, whereas traditional bucket shops are not.  So, why is modern day bucketing legal, whereas traditional bucket shops are not?  I hypothesize that our laws allow modern day bucketing for two reasons.  The first reason is that bucketing is actually beneficial to society.  The second reason is because the exchanges, or their members, themselves profit from modern types of bucketing.  However, the traditional form of bucket shops should also be legal today, as they too could prove to be valuable for society. 
     
Section II:  Some history behind bucket shops:
      
The origin of the term bucket shop has nothing to do with financial markets, as the term originated from England in the 1820s.  During the 1820s, street urchinsFN3 drained beer kegs which were discarded from public houses.  The street urchins would take the dregs to an abandoned shop and drink them.  This practice became known as bucketing, and the location at which they drained the kegs became known as a bucket shop.  The idea was transferred to illegal brokers because they too sought to profit from sources too small or too unreliable for legitimate brokers to handle.FN4
      
The term bucket shop has recently been said to mean; that under the guise of a valid contract, the parties involved cannot make the contract valid when “the real intention is merely to speculate on the rise and fall of the market without any intention that any property shall be delivered or received, but with the understanding that, at the appointed time, the account is to be adjusted by paying or receiving the difference between the contract price and the current price.”FN5
      
People often use the term boiler room and bucket shop interchangeably.  However, there is a world of difference between a boiler room and a bucket shop.  A boiler room has been defined as “[a] place where high-pressure salespeople use banks of telephones to call lists of potential investors (known as a "sucker lists") in order to peddle speculative, even fraudulent, securities. A boiler room is called as such because of the high-pressure selling.”FN6  As boiler rooms are where banks of telephones are used for high pressure sales tactics, and bucket shops are really for the registration of bets, the two terms are not interchangeable despite the fact that the two terms are used synonymously. 
      
Bucket shops, not boiler rooms, were quite common in the United States during the late 1800s and early 1900s.  Bucket shops would “buy from the telegraph companies, or steal by tapping wires, the quotations of the leading exchanges, and write the quotations on blackboards as the basis of the bets made in their shops.”FN7  Individuals would walk into a bucket shop and decide if they want to buy or sell a certain stock or commodity.  The individual would fill out a ticket and make the order with the clerk, the clerk would either accept the order, or wait for the market to reach the price on the ticket.  If the clerk accepted the order, then the bucket shop took the opposite side of the trade.  Never, would a bucket shop actually make a trade on either the commodities or stock market.FN8
      
John Hill said that “quotations are one thing absolutely essential to the existence of a bucket shop.  The moment quotations cease coming in, betting stops and the bucketshop is out of business.”FN9 The reason quotations were fundamental to the survival of a bucket shop is because the patrons of the shop were simply betting on the price movement of the stock.  Since no security actually changed hands, it was the quotation itself that was the basis of the bet.  If the quotations stopped coming from the telegraph machine, there was no technology that would allow a bucket shop to stay in business.
      
Since exchanges did not like the fact that bucket shops competed with them for business, exchanges signed contracts with telegraph companies, which required the telegraph companies not to furnish quotations to bucket shops.FN10  The result of these contracts was for bucket shops to declare bankruptcy, or to steal quotations by tapping the wire.
      
In today’s society quotations are everywhere, on television, on-line, on cell phones and on palm-pilots.  With this advancement in technology, bucket shops would not steal quotes by tapping wires and could not cheat individuals with inaccurate quotes.  In the era of bucket shops, the quotations from the bucket shop were essential to the bet, as individuals could not obtain their own quotes, leaving open the opportunity for fraud.  Although in the past quotations were essential to the existence of a bucket shop, modernly, although still essential, quotations are readily available to the general public, not unique to bucket shops, and therefore cannot be misquoted.
      
In the past, when prices moved significantly against a bucket shop’s position, the shop would often close its doors or file for bankruptcy, leaving behind uncollectible debts.FN11 This resulted in individuals who were patrons of bucket shops feeling cheated. The feeling sometimes was, if the individuals won, the bucket shop closed its doors, if the individual lost, the bucket shop took their money.  Well, bankruptcy still exists today, and bankruptcy often leaves people feeling like victims. Recently, a Canadian airline called Jetsgo went bankrupt leaving 17,000 people stranded across North America.  Ontario’s Consumer Minister, Jim Watson, said “Jetsgo’s bosses should be arrested and charged for ‘hoodwinking’ an unsuspecting flying public.”FN12  In the day of bucket shops, bankruptcy existed and creditors lost out sometimes feeling cheated, modernly, bankruptcy still exists and creditors still lose out and feel cheated.  The feeling of being cheated in respect to bankruptcy has not changed since the era of bucket shops.
      
Modernly, virtually every state has laws prohibiting bucket shopsFN13, and Congress passed the Commodities Exchange Act, which also prohibits bucket shops.FN14  But, does it really make sense to still prohibit bucket shops in today’s modern world?
     
Section III: Traditional bucket shops at work
      
Historically a bucket shop would make it easy to gamble on market quotations.FN15 The bucket shop owner would take a $10 wagerFN16, and in the case of stocks, charge 25 cents for the trade of one share, or in the case of commodities, charge 12.5 cents for the trade of a commodities contract.FN17  Then the bucket shop owner would shuffle the market quotations to freeze out the unsuspecting rube who placed the bet.FN18 Today, it would be difficult for a bucket shop owner to shuffle the market as quotes are not written on blackboards, and public markets are generally extremely liquid.FN19
     
Section IV: The laws prohibiting bucket shops:
      
Since in the past bucket shops were considered to be an evil and a drain on society, it was easy for exchanges to spearhead attacks on bucket shops,FN20 virtually every state passed laws prohibiting them.
      
New York law states that any purchase or sale made based on public quotes from an exchange, without intending a bona fide purchase or sale, is bucketing, and the individuals who make the bets are guilty of a felony.FN21

California Law states that bucketing or bucket shopping means entering into a contract respecting the purchase or sale of securities or commodities, where both parties intend that the contract is terminated on the basis of public market quotations without a bona fide purchase or sale of the securities or commodities.FN22 Also, any person who enters into a contract to bucket, or is the keeper of a bucket shop is guilty of a felony.FN23
      
Illinois, which houses the Chicago Mercantile exchange, The Chicago Board of Trade, and the Chicago Board of Options Exchange, repealed its anti-bucket shop laws in 1962.FN24
      
The Commodities Exchange Act (hereinafter CEA), which was enacted in 1974, also prohibits bucket shops.  The CEA states that contracts designed to defraud, mislead, or bucket orders, shall be unlawful.FN25
      
In conclusion, Congress, and virtually every state has laws prohibiting bucket shops, Illinois being an exception.  These laws generally provide that buying or selling stock or commodities where it is intended by both parties that these contracts will be terminated based on public quotations, without ever intending an actual trade of stock or commodities is bucketing, and therefore a felony.

Section V:  Whose law applies, and when
      
The CEA prohibits bucketing, but provides exemptions for certain types of transactions.  A question that arises is, if an individual or corporation violates a state bucket shop law, to which an exemption exists in the CEA, can the individual be prosecuted under state law? 

The Futures Trading Practices Act of 1992 amended section 12(e)(2)(A) of the CEA to provide that any state or local law which prohibits bucket shops, not general anti-fraud provisions, shall not apply if there is an exemption granted by the Commission under section 4(c).FN26  Therefore, so long as there is an exemption in the CEA, state anti-bucket shop laws are not enforceable, as federal law preempts state law.  The reason that Congress would want to preempt state law if there is an exemption in the CEA, is that this is the only way that Congress can actually gain control over financial markets.  Otherwise, if the CEA allowed swap agreements to be exempt, but any of the fifty states did not exclude swaps, then all the individual swap traders in that state would be committing a felony.

Section VI: Wall Street during the bucket shop era
      
In 1792 a group of twenty-four traders gathered under a buttonwood tree at 68 Wall Street in lower Manhattan, New York City, and agreed in writing to only trade with each other, and to trade on a commission basis, thus creating a cartel.FN27 This cartel is now the world's largest, and second oldest stock exchange, humbly created with a two-sentence document, the document being known today as the "Buttonwood Agreement."FN28  Hence, the New York stock exchange was born.
      
Approximately a century later angry farmers complained that more produce changed hands on the market than was produced in their fields.FN29  Farmers remarked that traders who made money from the transfer of property were the “direct descendants of evil gamblers who lived as parasites on the productive economy.”FN30  In response to the farmers complaints, in 1890 the “Butterworth Anti-Option Bill was introduced in Congress, but never came to a vote.”FN31 Congress was concerned about speculation, and Chairman William H. Hatch, of Missouri, proposed a 10% tax on commodity trading if the trader did not currently posses the commodity.FN32  The Hatch bill passed both houses, however it “failed during reconciliation between the two houses.”FN33
      
Part of the concern about the Hatch bill was a feeling that options markets are needed for hedging purposes.   Although some farmers were angry, there was also some evidence that speculation in grain futures helped stabilize the grain market, which meant that congress was uneasy about passing the Butterworth anti-option bill.  It is hypothesized that the grain market stabilized with the introduction of speculation, because before grain speculation was legal, during harvest time all the farmers wanted to get rid of their wheat, thus putting pressure on the price of wheat.  However, during the spring there was not enough wheat, and the price of wheat was quite high.FN34  Therefore, with speculators in the picture who were willing to store wheat when all the farmers wanted to sell, and sell wheat when all of the farmers were waiting for the next harvest, the price of wheat seemed to stabilize.
      
Historically, when a trade was made, either the actual commodity or a certificate of stock was issued to the buyer.  Therefore, if a bucket shop in the mid-west actually purchased stock, the bucket shop would have to receive the stock all the way from New York.  As transportation in the 1800’s required horses and trains, it was much more difficult to physically move certificates.  Also, modernly most transactions are done in what is known as Street name.FN35  Street name transactions make the transfer of securities from one part of the country to the other much easier as no signature is required.  Therefore, bucket shops were able to offer what legitimate brokers could not offer due to expensive transportation restraints, that is, trades for 25 cents per share.
     
Section VII: The formation of the derivatives market
      
The first derivative has its roots back to the bible.  In Genesis chapter 29 “Jacob purchased an option costing him seven years of labor that granted him the right to marry Laban's daughter Rachel.  His prospective father-in-law, however, reneged, perhaps making this not only the first derivative, but the first default on a derivative.”FN36
      
The Dutch Tulip bulb mania, “was characterized by forward contractingFN37 on tulip bulbs around 1637. [Whereas], [t]he first futures contracts are generally traced to the Yodoya rice market in Osaka, Japan around 1650. These were evidently standardized contracts, which made them much like today's futures, although it is not known if the contracts were marked to marketFN38 daily and/or had credit guarantees.”FN39
      
In the United States, it is probably the sale of grain which developed the first derivatives market. “Since most farmers sold the bulk of their production at harvest time, brokers and millers reduced their bids because supply greatly exceeded their short-term needs. During times when the market could not absorb the seasonal glut at any price, grain was dumped on the streets. Yet several months after a harvest, shortages developed, prices soared, and people starved.”FN40
      
Most likely, the first major historical event in the United States, regarding derivatives, was the creation of the Chicago Board of Trade in 1848.FN41  Due to Chicago’s location on Lake Michigan, Chicago was becoming a major center for storage, sale and distribution of Midwestern grain.  However, Chicago’s facilities were unable to accommodate the influx of grain following harvest.  Similarly, Chicago’s storage facilities were underutilized in the spring.FN42  A group of traders created the ‘to arrive’ contract, which allowed farmers to lock in a price today, and deliver the grain in the future.FN43  Sometimes, farmers would decide to store the grain on their farm, or in local elevators, and deliver the grain to Chicago months later, therefore allowing the farmers to speculate on price movements.FN44  The to-arrive contract allowed hedging and price speculation on the price movements of grain.  Quickly, both the farmers and the grain traders realized that the sale and delivery of the grain was not nearly as important as the ability to transfer the price risk associated with the grain.FN45  These to-arrive contracts were standardized around 1865, and in 1925 the first futures clearinghouse was formed.FN46
      
These forward contracts assured efficient distribution of grain over time.  This made for a more efficient economy as the price of grain would not vary so wildly between harvests.  In fact, the purpose behind these forward contracts is fundamental to a healthy economy.FN47 
     
Section VIII: Prohibitions of certain derivatives
      
Even though Illinois learned the value of futures and forward contracts, Illinois still did not know the value of options contracts.  In 1902 Section 130 of the Illinois’ criminal codeFN48 made it illegal to trade in options for stocks and commodities, and a violation of the code required a fine of not less than $10 nor more than $1000, or confinement in the county jail to not exceed one year.  Also, any contract made in violation of this statute was considered a gambling contract, and therefore void.
      
Several southern states passed anti-futures legislation.FN49  On top of that, a near panic in the market in 1903 resulted in many rural states legislating anti-future statutes.  Courts were called upon more and more to distinguish between wagering contracts, unenforceable by law, and futures contracts which are enforceable by law.
      
In the mid 1800s, famed New York financier Russell Sage began creating synthetic loans using the principle of put-call parity.FN50 Sage would buy the stock and a putFN51 from his customer and sell the customer a call.FN52 By fixing the put, call, and strike prices, Sage was creating a synthetic loan with an interest rate significantly higher than usury laws allowed.FN53  Therefore, people like Russell Sage began financial engineering with derivatives.  Financial engineering is quite common place today.  In fact banks have departments called structured finance which engage in financial engineering.  A common type of financial engineering today is index linked certificates of deposit.
     
Section IX: Indexed Linked Certificates of deposit
      
A indexed linked certificate of deposit is actually bucketing.  How so?  The California statutory definition of bucketing requires (1) the making of a contract, (2) settled according to public market quotations, and (3) without a bona fide purchase or sale of the securities or commodities.  Well, an index linked certificate of deposit is (1) the making of a contract, as the individual and the bank enter into an agreement.  The individual gets the gain if the securities rise, and the bank must pay the maturity value of the certificate upon maturity.  (2) Is settled according to public market quotations, as the bank products are index linked, and indexes are constantly quoted to the public.  (3) There is never any bona fide purchase or sale of the securities in question as the securities which underlie the index will never be purchased or sold.  Therefore, these indexed linked certificates of deposit are actually bucketing.
      
In order to legalize indexed linked certificates of deposit, the CEA provides for exclusions of many banking products,FN54 which includes indexed linked certificates of deposit.  Therefore, index linked certificates of deposits, which offer investment opportunities for unsophisticated investors, would be a felony if it were not for the CEA providing for special exclusions for these banking products.

Section X: Wall Street, Today
      
There is a new sort of bucket shop in town, day trading firms.  Today’s day trading firms don’t actually bucket an order, as an exchange does take place, but individuals sit in the firm, often using technical analysis, and trade, closing their positions out before the close of the market.  Mr. Klayman, a lawyer representing twenty Worldcom claimants against Salomon said, "Whether you're doing business at a major firm or at a bucket shop, the mentality is the same. Write the tickets, generate the commissions, and we'll worry about it later."FN55
      
There are ten or more electronic communication networks (ECNs) in operation today, in conjunction with the NADAQ.  In fact, “[d]ay Trading firms have sprung up across the country and even internationally. With direct electronic access, speed of light execution, availability of ECN’s, Electronic Day Trading is here to stay. It is no less risky than the bucket shops of old, but it has become a legitimate, regulated and organized profession worthy of competing with the age-old Trading Houses.”FN56 The NYSE and a number of other exchanges are planning changes to their organization in order “to reflect the new age of the NASDAQ and Direct Access Trading.”FN57
      
Whether society legalizes traditional bucket shops or not, people will still lose a fortune on the markets.  Take for example the case of Mark O. Barton.  Mr. Barton began trading with All-Tech in April of 1998.  Barton informed All-Tech that he had $500,000, deposited $100,000 with All-Tech and began trading.  By May 10, 1999 Mr. Barton had lost more than $400,000 and All-Tech closed his account.  A few days later Mr. Barton went across the street to Momentum Trading to open an account.  At Momentum Trading Mr. Barton lost $137,000.FN58

On July 27, 1999 Mr. Barton bludgeoned his wife to death.  The next day he killed his two children from a previous marriage.FN59  Then on July 29, 1999 Mr. Barton walked into Momentum Trading and observing that "it was a bad trading day and … going to get worse," he opened fire.  Mr. Barton killed four people in Momentum Trading and then walked across the street to All-Tech killing an additional five people.FN60 A couple of hours later the police surrounded his van, and Mr. Barton committed suicide.FN61
      
On April 23, 2000, The New York Times wrote:
      
Day trading is a sucker's game, as people learned in the summer of 1999, when Mark O. Barton opened fire in two Atlanta day-trading shops, killing nine people and injuring 12 others. Barton, after flushing his life savings down the high-tech toilet, was more demonstrative than his colleagues, but many of them must have been feeling their own "trade rage." Ninety percent of the players mousing around in electronic bucket shops lose money, and the sport is no less perilous when played at home.FN62

Also, “In late 1999, securities regulators in Washington State surveyed trading offices there and found that 77 percent of day traders lost money. The average loss over their trading careers: $36,000.”FN63  Also in 1999, Mr. Galvin who is the Massachusetts secretary of the commonwealth conducted an investigation into day trading firms.  His investigation at one particular firm found that all but one customer lost money.FN64
      
It should be noted that on July 29, 1999 when Mr. Barton opened fire in the day trading firms, the Nasdaq 100 index closed at a level of 2,263.06.FN65  The Nasdaq 100 subsequently reached a high on March 24, 2000 at a level of 4,816.35.FN66  In other words, the New York Times stating that 90% of traders lost money, and the Washington State survey stating that 77% of day traders lost money, and Mr. Galvin’s investigation, was all conducted in the middle of a great bull market.  The Nasdaq 100 reached a bottom on October 8, 2002 to the level of 795.25.FN67  If in a bull market day traders were losing so much money, how much more money would one speculate has been lost in the bear market?
      
One might think that all the money lost is a perfect example as to why day trading firms, and bucket shops should be outlawed.   Perhaps one could make that argument, but it is beyond the scope of this article.  This article argues that if we are going to allow people to day trade, then we should also allow bucket shops to exist.  What is the disadvantage to society?  Instead of trading through a monopoly, The New York Stock Exchange and the like, one gets to bet with a bucket shop.  So long as the individual making the bet is aware that he is trading in a bucket shop, then what disadvantage does society have?  It can be argued that the disadvantage to society in legalizing bucket shops is that trades could take place off the exchange, therefore not leaving footprints.
     
Section XI: Online Bucket shops
      
If you want a bucket shop today, go online.  A company by the name of Trade Exchange Network started in 2001 and launched what they call the first real-time person to person trading platform.FN68  Trade Exchange Network currently operates two online bucket shops.  They operate www.tradesports.com and www.intrade.com.
      
Unlike the commission rates through brokerage houses, the cost of trading at a online bucket shop operated by Trade Exchange Network is free for those who are price makers and only as high as 4 cents per a 10 dollar contract for price takers.  
     
Section XII: Caiola v. Citibank
      
In the mid 1980s, a wealthy individual by the name of Mr. Caiola was trading hundred of thousands of shares of Philip Morris.FN69 As Mr. Caiola was trading in large volumes, and hedging in large volumes, Mr. Caiola did not want to leave footprints.
      
Caiola's positions required margin postings of tens of millions of dollars and were sufficiently large that the risks to him were unacceptable unless hedged. But the volume of options necessary to hedge effectively could impact prices and disclose his positions--effects known as “footprints” on the market. In early 1994, Citibank proposed synthetic trading. A synthetic transaction is typically a contractual agreement between two counterparties, usually an investor and a bank, that seeks to economically replicate the ownership and physical trading of shares and options. The counterparties establish synthetic positions in shares or options, the values of which are pegged to the market prices of the related physical shares or options. The aggregate market values of the shares or options that underlie the synthetic trades are referred to as "notional" values and are treated as interest-bearing loans to the investor.FN70
      
As Mr. Caiola and Citibank were purposefully not trading on the market in order to avoid footprints, Mr. Cailoa and Citibank were bucketing orders as (1) Mr. Caiola and Citibank entered into a contract, (2) settled according to public market quotations, and (3) without a bona fide purchase or sale of the securities or commodities.  The transactions were never posted on the market, while the bucketing was going on, therefore violating the anti-bucket shop laws of the CEA and the several states.
      
In the case of Caiola v. Citibank, neither any of the lawyers nor the judge brought up the anti-bucket shop laws of the states or the CEA.  Instead, the focus of the litigation was on whether or not the synthetic options were considered a security.   The reason for this focus had to do with Mr. Caiola’s ability to bring a 10b-5 (securities fraud) cause of action.  If the synthetic option was considered a security then Mr. Caiola could bring his 10b-5 cause of action, however if it was not a security, then Mr. Caiola could not bring his 10b-5 cause of action.  The court held that the synthetic options was indeed a security and allowed Mr. Caiola to proceed with his 10b-5 cause of action.
      
The ramification of making a synthetic option a security has been quite extensive.  Now, the Securities and Exchange Commission (herein after SEC), rather than the Commodities and Futures Commission (herein after CFTC), regulates options that are cash settled.  The most well known cash settled option is known as an index option.

Section XIII: Index options
      
A stock gives the owner the right to vote for directors of a corporation and all future dividends of the corporation.FN71  A commodity is an economic good.FN72 An index is a composition of a basket of securities designed to reflect a market.FN73  Indexes are not actually traded themselves, as they are just quotations.  However, Index options are traded on a daily basis in the millions of contracts each day.  Index options are different from options on stocks or commodities, as index options are cash settled.FN74  Since they are cash settled, when the option is exercised or assigned, there is no security which changes hands, but rather cash itself.  Since no security changes hands upon exercise of an index option, trading index options would be bucketing.  However, the issue on index options being bucketing was resolved by a conflict between the SEC and CFTC.
      
The SEC and the CFTC have had many jurisdictional battles in the courts.FN75  “Matters came to a head in 1980, when both agencies asserted jurisdiction over options on securities based on pools of notes.”FN76   The SEC contended that they should regulate options on securities, as under § 3(a)(10)FN77 of the 1934 act, options on securities are securities.  “The CFTC countered that options on financial instruments are futures under § 4c(b) of the CEAFN78, and added that because its jurisdiction is exclusive, it is the sole lawful regulator.”FN79  While the case was pending the two agencies came to a pact, which the SEC called the Shad-Johnson agreement and the CFTC called the Johnson-Shad agreement. John Shad was the SEC’s chairman at the time and Phillip Johnson the CFTC’s.FN80  This agreement provided that with regards to options, jurisdiction will be based upon the thing of which the options are written.FN81 However, this pact was not upheld as the court decided that the agencies could not alter their jurisdiction by an agreement.FN82 
      
In order to resolve the issue, in 1982 Congress itself enacted the accord, almost verbatim.  The modification added to the definition of a security in the 1933 and the 1934 exchange act by inserting the words any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency.”FN83 This means that it is the SEC which has exclusive jurisdiction over index options on stocks, as index options are now themselves securities.
      
A result of adding index options to the definition of a security is that when index options are traded, there is no bucketing, as the option is itself a security.  This can be demonstrated by looking at the California definition of bucketing.  California statutory definition requires (1) the making of a contract, (2) settled according to public market quotations, and (3) without a bona fide purchase or sale of the securities or commodities.  Therefore, the third element required for the California definition of bucketing is not satisfied as trading an index option will itself be a bona fide purchase or sale of a security.
      
Therefore, despite the fact that trading index options does not result in a bona-fide purchase or sale of any security upon exercise of the option, trading the option itself is not bucketing.
     
Section XIV:  What is so evil about bucketing?
      
When Congress first regulated futures trading, its primary concerns were the prevention of price manipulation and the elimination of bucket shops.FN84 Why so?  In part the Chicago Board of Trade declared war on bucket shops.FN85  In doing so, they “turned cries for reform from a criticism of the evil of speculation itself into an effort to eliminate the evils from speculation.”FN86 It has also been said that "[t]he evil of bucketing was that it sidestepped the competitive open outcry auctions which take place on the floors of exchanges."FN87 The exchanges even entered into an agreement with Western Union to keep bucket shops from receiving quotes from telegraph machines.FN88 In other words, to take some heat off themselves and to protect the monopoly that the exchanges enjoy, the exchanges spearheaded the attack on bucket shops in the late 1800s and early 1900s. 
      
In the mid 1980s we have Citicorp, a member of the New York Stock exchangeFN89, voluntarily entering into bucketing orders with Mr. Caiola.  It appears that when it is good for the exchanges to keep their monopoly, they “spearhead” attacks on bucket shops.  However, when it is good for members of the exchanges to bucket orders, they do so at will.
      
The term bucket shop is used with a very negative connotation, and in a manner that does not accurately reflect the definition of a bucket shop.  As previously stated, it has been said that a boiler room is also called a bucket shopFN90, which is wrong.  A boiler room is “an unflattering term used to describe a fraud scheme in which salespeople are hired to call unsuspecting individuals and push investment opportunities. These high-pressure calls are often used to pitch worthless or nonexistent securities. These operations typically consist only of a large number of telephones in a single room, giving rise to their name.FN91 Below are two snipits from some articles using the term bucket shop in a negative manner.
      
[T]he so-called microcap stocks that trade on the Nasdaq SmallCap Market, the OTC Bulletin Board or in the pink sheets -- was being manipulated by bucket-shop firms operated by unlicensed brokers and managed by loosely organized gangs of thugs, some of them with crime-family connections.FN92
      
In 1998 Richard H. Walker, general counsel at the SEC, said ‘Those in the bucket shops, boiler rooms and other fraudulent enterprises which are capitalizing on this bull market ought to think about some other line of business.’FN93
      
Today, the term bucket shop is being used in a manner outside its definition with a very negative connotation.  This attack on the term bucket shop is what helps to keep bucket shops from becoming legal and keeps society believing that bucket shops are evil.  However, the reasons why bucket shops are so hated, is because the big players in the financial industry don’t want to see bucket shops trample on their monopoly.

Section XVI: The role of regulation if bucket shops are legalized
      
[A]n efficient system of regulation relies heavily on competition and free-market forces, while the protection of investors and securities markets hinge on legislate, administrative, judicial, and private restrains on free enterprise.FN94
      
United States securities regulation does not rest solely in the hands of one piece of legislation, or one governmental agency.  As it currently stands, U.S. securities legislation comes from congress enacting the securities act of 1933 and the securities exchange act of 1934 (herein after 1934 act), along with other statutes.FN95 The authority to administer and interpret federal securities registration rests with the SEC, which regulates certain issuers and persons associated with the issuers.FN96  The SEC regulates brokers, dealers, investment advisers and others.  Self-regulatory organizations (herein after SROs) are overseen by the SEC and examples of SROs include, the New York Stock Exchange, The American Stock Exchange, and the NASDAQ.  SROs adopt rules and impose sanctions on its members for violations.FN97  Further, the Department of Justice which has exclusive authority to bring criminal prosecutions for securities law violations, adds further limitations on the securities market.FN98
      
Section 16(b) of the 1934 actFN99 could use some special attention, in relation to bucket shops.  Section 16(b) requires “that all profits from purchases and sales or sales and purchases of a reporting company’s equity securities by a director, officer, or shareholder of more than 10% of any class of equity securities within a six-month period are subject to recovery by the company.”FN100
      
Therefore, in order to protect the general public from insiders who wish to avoid 16(b) by trading in a bucket shop, regulation should require bucket shops to gather information on their clientel.  This information should be required to be used by the bucket shop to ensure the client is not violating section 16(b) of the 1934 act.  Further, bucket shops will self regulate themselves, as it is the bucket shop which is taking the opposite side of the insider’s trade.  Therefore, it will be the bucket shop that loses money to the insider if the bucket shop does not self regulate.
      
Further, since in the past bucket shops would often declare bankruptcy leaving their customers feeling cheated, legislation could require that bucket shops post a bond to ensure that their customers would be paid off.  The bond would give some assurance to bucket shop patrons that they would not be left high and dry if the bucket shop was to declare bankruptcy.
      
A main purpose of securities regulation is to require full disclosure.FN101  In order to comply with the purpose of securities regulation, bucket shops should be required to disclose that they are indeed bucketing orders and not making actual trades on the market.  This would ensure that people understand that when trading in a bucket shop they are not placing trades on the market.  Furthermore, disclosure requirements should keep brokers from simply deciding to bucket client orders without informing the clients that they are acting as a principal.FN102
      
Apart from section 16(b) of the 1934 securities exchange act, a bond, and full disclosure, there is no particular reason why the current framework of securities regulation could not regulate bucket shops.  If a bucket shop were to violate any of the securities regulations, the bucket shop could be sanctioned within the traditional framework of securities regulation.
     
Section XVII: What benefit would bucket shops provide if they were legalized?
      
If bucket shops were legalized today, they would have a lot more trouble succeeding than in the past.  This is because the cost of trading has come down significantly, removing the edge that bucket shops once had.  As mentioned previously, the Buttonwood Agreement was signed in 1792, requiring the twenty four signatures to only trade with each other, and to trade on a commission basis.FN103  This allowed these twenty four brokers to charge excessive commissions, as they enjoyed a monopoly.  Today, we have many on-line brokers who charge as little as $6.99 per trade, at E-trade, and as much as 17.95 per trade at TD Waterhouse .FN104  Therefore, any bucket shops which would enter into the industry would have to compete with these ultra low commissions.      
      
If a bucket shop was to operate today, perhaps the bucket shop would offer its patrons something above and beyond trading.  The type of things that may be offered could include a television with financial news on the program, or food and drinks to their patrons.  Perhaps even exercise equipment could be offered to customers, so that the customers could watch the ticker tape as they get in their daily exercise.  Furthermore, the bucket shop would be a centralized location where traders could meet to discuss potential trading strategies and ideas.
      
A bucket shop would make it easier for clients to trade in sizes smaller than a board lot.FN105  This means that customers who do not wish to invest the amount of money required for a board lot, could easily trade in an odd lot.FN106  Therefore, by legalizing bucket shops individuals who do not have enough money to trade board lots, would still have an opportunity to trade.
      
At this juncture, it is not entirely clear as to what extent the benefits of legalizing bucket shops would offer society. It appears that legalizing bucket shops would add competition to brokerage houses and exchanges, and in a capitalistic society competition is always welcome.  Further, even if it was argued that legalizing bucket shops would not add any benefit to society, it is the marketplace which should make that decision and not the legislature.
     
Section XVIII: Conclusion

Bucket shops were illegalized about a century back, because exchanges and boards of trade felt that bucket shops were damaging their monopoly, as they were losing money to these shops.  Therefore, exchanges and boards of trade spearheaded the attacks on bucket shops in order to maintain their monopoly.  The exchanges attacked bucket shops by focusing on problems with unscrupulous bucket shop owners who were able to commit fraud against their customers due to a lack of technology.  As financial engineering has gotten to be more and more sophisticated, exchanges and their members have decided to benefit from bucketing.  Therefore, exchanges and their members have worked to gain exceptions to the anti-bucketing laws and these exceptions include banking products, synthetic equity swaps, and index options.  Just like these forms of bucketing, a traditional bucket shop does not cause any particular harm to our modern society.  In fact, there would likely be several benefits to our society as there would be added competition.  In essence, a traditional bucket shop would be a mini-exchange in a specific location competing with the big exchanges.  So, to allow bucket shops to exist today would help further destroy the cartel that the NYSE and other exchanges currently enjoy.  It is true that the monopoly that the NYSE enjoyed in the past is already diminishing with the creation of several markets like the NASDAQ and ECNs.  However, simply because the monopoly that was once enjoyed by the NYSE is changing into an oligopoly, does not mean that we should stop there!

1 Gatewood v. North Carolina, 27 S.Ct 167, 168 (1906).
2 Pyrenee, Ltd. v. Wocom Commodities, Ltd., 984 F.Supp 1148, 1153 (1997).
3 An Urchin is a playful or mischievous youngster.
  http://dictionary.reference.com/search?q=urchins
4 John Hill, Gold Bricks of Speculation 39 (Chicago Lincoln Book Concern, 1904).
5 Richard A. Lord, Williston on Contracts § 17:12 (West 2004).
6 http://www.investopedia.com
7 John Hill, Gold Bricks of Speculation 21 (Chicago Lincoln Book Concern, 1904).
8 id. at 52-55
9 id. at 21
10 Board of trade of city of Chicago v. Christie, 198 U.S. 236, 246 (1905).
 11William L. Stein, The Exchange-Trading Requirement of the Commodity Exchange Act, 41 Vand. L.Rev. 473, 477 (1988).
12 Rick Westhead, Jetsgo selling tickets up to end; Passengers left scrambling Public was ‘hoodwinked,’ minister alleges Observers believe airline knew risk of insolvency, The Toronto Star (March 12, 2005) (available at 2005 WLNR 3836862).
13 Richard A. Lord, Williston on Contracts § 17:12 (West 2004).
14 7 U.S.C. § 6b (2000).
15 John Hill, Gold Bricks of Speculation 22  (Chicago Lincoln Book Concern, 1904).
16 id.
17 id. at 59
18 id. at 22
19 Liquid Market is a market with many bid and ask offers.  http://www.investopedia.com/terms/l/liquidmarket.asp
20 Cedric B. Cowing, Populists, Plungers, and Progressives 29 (Princeton, New Jersey Princeton University Press 1965).
21 Any person, copartnership, firm, association or corporation, whether acting in his, their or its own right or as the officer, agent, servant, correspondent or representative of another, who shall: 1. Make or offer to make, or assist in making or offering to make any contract respecting the purchase or sale, either upon credit or margin, of any securities or commodities, including all evidences of debt or property and options for the purchase thereof, shares in any corporation or association, bonds, coupons, scrip, rights, choses in action and other evidences of debt or property and options for the purchase thereof or anything movable that is bought and sold, intending that such contract shall be terminated, closed or settled according to, or upon the basis of the public market quotations of or prices made on any board of trade or exchange or market upon which such commodities or securities are dealt in, and without intending a bona fide purchase or sale of the same; or,

Makes or offers to make or assists in making or offering to make any contract respecting the purchase or sale, either upon credit or margin, of any such securities or commodities intending that such contract shall be deemed terminated, closed and settled when such market quotations of or such prices for such securities or commodities named in such contract shall reach a certain figure, without intending a bona fide purchase or sale of the same; or,

3. Makes or offers to make, or assists in making or offering to make any contract respecting the purchase or sale, either upon credit or margin of any such securities or commodities, not intending the actual bona fide receipt or delivery of any such securities or commodities, but intending a settlement of such contract based upon the difference in such public market quotations of or such prices at which said securities or commodities are, or are asserted to be, bought or sold; or,

4. Shall, as owner, keeper, proprietor or person in charge of, or as officer, director, stockholder, agent, servant, correspondent or representative of such owner, keeper, proprietor or person in charge of, or as officer, director, stockholder, agent, servant, correspondent, or representative of such owner, keeper, proprietor or person in charge, or of any other person, keep, conduct or operate any bucket shop, as hereinafter defined; or knowingly permit or allow or induce any person, copartnership, firm, association or corporation whether acting in his, their or its own right, or as the officer, agent, servant, correspondent or representative of another to make or offer to make therein, or to assist in making therein, or in offering to make therein, any of the contracts specified in any of the three preceding subdivisions of this section.

Shall be guilty of a felony. The prosecution, conviction and punishment of a corporation hereunder shall not be deemed to be a prosecution, conviction or punishment of any of its officers, directors or stockholders.
NY GEN BUS § 351 (1975).

22 "Bucketing" or "bucket shopping" means any of the following:

(a) Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties intend, or the keeper intends, that the contract shall be, or may be, terminated, closed, or settled according to or upon the basis of the public market quotations of prices made on any board of trade or exchange upon which the securities or commodities are dealt in, without a bona fide purchase or sale of the securities or commodities.

(b) Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties intend, or the keeper intends, that the contract shall be, or may be, deemed terminated, closed, or settled when the public market quotations of prices for the securities or commodities named in the contract reach a certain figure without a bona fide purchase or sale of the securities or commodities.

(c) Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties do not intend, or such keeper does not intend, the actual or bona fide receipt or delivery of the securities or commodities, but do intend, or the keeper does intend, a settlement of the contract based upon the differences in the public market quotations of prices at which the securities or commodities are or are asserted to be bought and sold.

(d) The sale by a keeper of any security or commodity purchased by him for the account of or upon the order of another when the proceeds of the sale are not immediately credited by the keeper to the account of the other person and when a report or statement in writing of the sale is not rendered to the other person by the keeper on the next business day following the sale
Cal.Corp.Code § 29008 (1977).

23 Any person who makes or offers to make any contract constituting bucketing . . ., or who makes any sale constituting bucketing . . ., or who is the keeper of any bucket shop, is guilty of a felony.
Cal.Corp.Code § 29100 (1977).

24 Il. Code. 720 ILCS 5/35-1 (1962).
25 (a) Contracts designed to defraud or mislead; bucketing orders

It shall be unlawful (1) for any member of a registered entity, or for any correspondent, agent, or employee of any member, in or in connection with any order to make, or the making of, any contract of sale of any commodity in interstate commerce, made, or to be made, on or subject to the rules of any registered entity, for or on behalf of any other person, or (2) for any person, in or in connection with any order to make, or the making of, any contract of sale of any commodity for future delivery made, or to be made, for or on behalf of any other person if such contract for future delivery is or may be used for (A) hedging any transaction in interstate commerce in such commodity or the products or byproducts thereof, or (B) determining the price basis of any transaction in interstate commerce in such commodity, or (C) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof--
(i) to cheat or defraud or attempt to cheat or defraud such other person;
(ii) willfully to make or cause to be made to such other person any false report or statement thereof, or willfully to enter or cause to be entered for such person any false record thereof;
(iii) willfully to deceive or attempt to deceive such other person by any means whatsoever in regard to any such order or contract or the disposition or execution of any such order or contract, or in regard to any act of agency performed with respect to such order or contract for such person; or
(iv) to bucket such order, or to fill such order by offset against the order or orders of any other person, or willfully and knowingly and without the prior consent of such person to become the buyer in respect to any selling order of such person, or become the seller in respect to any buying order of such person.
7 U.S.C. § 6b (2000).

26 The Futures Trading Practices Act of 1992 amends section 12(e)(2)(A) of the [CEA] to provide that any State or local law that prohibits or regulates gaming or the operation of "bucket shops" (other than anti-fraud provisions of general applicability) shall not apply with respect to a transaction or class of transactions that has received or is covered by an exemption granted by the Commission under section 4(c). It thus provides legal certainty under both the [CEA] and state gaming and bucket shop laws for transactions covered by the terms of an exemption.
Thrifty Oil Co. v. Bank America Nat. Trust and Sav. Ass’n, 322 F.3d 1039, 1056 (2003).
27 William I. Friedman, The Fourtheenth Amendment’s Public/Private Distinction Among Securities Regulators in the U.S. Marketplace—Revisited, 23 Ann. Rev. Banking & Fin. L. 727 FN50 (2004).
28 Id.
29 Ann Fabian, Card Sharps and Bucket Shops 9 (Routledge, 1999).
30 Id.
31 http://www.eh.net/encyclopedia/?article=Santos.futures
32 Cedric B. Cowing, Populists, Plungers, and Progressives 5-6 (Princeton, New Jersey Princeton University Press 1965).
33 http://www.eh.net/encyclopedia/?article=Santos.futures
34 http://www.fenews.com/fen41/teach_notes/teaching-notes.html
35 Black’s Law Dictionary 1434 (Bryan A. Garner ed., 7th ed., West 1999)
36 id.
37 A cash market transaction in which delivery of the commodity is deferred until after the contract has been made.  Although delivery is made in the future, the price is determined on the initial trade date.  Most forward contracts don’t have standards and aren’t traded on exchanges.  http://www.investopedia.com/terms/f/forwardcontract.asp
38 Marked to market is where ones account is debited or credited each day according to price movements in                        the futures traded.
39 http://www.fenews.com/fen41/teach_notes/teaching-notes.html
40 William L. Stein, The Exchange-Trading Requirement of the Commodity Exchange Act, 41 Vand. L.Rev. 473, 474-475 (1988).
41 www.fenews.com/fen41/teach_notes/teaching-notes.html
42 Id.
43 Id.
44 Id.
45 Id.
46 Id.
47 William L. Stein, The Exchange-Trading Requirement of the Commodity Exchange Act, 41 Vand. L.Rev. 473, 475 (1988).
48 Whoever contracts to have or give to himself or another the option to sell or buy, at a future time, any grain, or other commodity, stock of any railroad or other company, or gold, or forestalls the market by spreading false rumors to influence the price of commodities therein, or corners the market, or attempts to do so in relation to any of such commodities, shall be fined not less than $10 nor more than $1,000, or confined in the county jail not exceeding one year, or both; and all contracts made in violation of this section shall be considered gambling contracts, and shall be void.  Ill. Rev. Stat. Crim, Code, § 130.
Booth v. People of State of Illinois, 184 S.Ct. 425, 426 (1902).

49 Stephen Craig Pirrong, The Self-Regulation of Commodity Exchanges: The Case of Market Manipulation, 38 JLECON 141, 185 (1995).
50 http://www.fenews.com/fen41/teach_notes/teaching-notes.html
51 A put is an option to sell something (esp. securities) at a fixed price even if the market declines; the right to require another to buy.
Black’s Law Dictionary 1121 (Bryan A. Garner ed., 7th ed., West 1999)
52 An option to buy something (esp. securities) at a fixed price even if the market rises; the right to require another to sell.
Black’s Law Dictionary 1121 (Bryan A. Garner ed., 7th ed., West 1999)
53 http://www.fenews.com/fen41/teach_notes/teaching-notes.html
54 7 U.S.C. § 27 a-c
55 Gretchen Morgenson, Outrage is Rising as Options Turn to Dust, The New York Times (March 31, 2002) (available at 2002 WLNR 4056672).
56 http://www.tradingacademy.com/education/trading/history.htm
57 Id.
58 Richmond Eustis, Day Trader Firms Ruled Not Liable for Rampage Appeals Panel Says Brokerages Couldn’t Forsee Barton Actions, Fulton County Daily Report, (December 19, 2003) (available at 12/19/2003 FULTONDAILY 1).
59 Id.
60 Id.
61 Id.
62 Thomas A. Bass, Don’t Quit The Night Job, New York Times (April 23, 2000) (available at 2000 WLNR 3285621).
63 Jeff Ostrowski, Hard-Core Day Traders Still at it, Journal Record Oklahoma City (May 1, 2001) (available at 2001 WLNR 4365176).
64 Katie Zezima, A Job Transformed: Paper-Pusher to Junkyward Dog, New York Times (Nov 27, 2003) (available at 2003 WLNR 5639748).
65 http://finance.yahoo.com/q/hp?s=%5ENDX&a=06&b=29&c=1999&d=06&e=29&f=1999&g=d
66 http://finance.yahoo.com/q/hp?s=%5ENDX&a=02&b=24&c=2000&d=02&e=24&f=2000&g=d
67 http://finance.yahoo.com/q/hp?s=%5ENDX&a=09&b=8&c=2002&d=09&e=8&f=2002&g=d
68 http://www.tradesports.com/aav2/TEN/TENstatement.html
69 Caiola v. Citibank, N.A., New York, 295 F.3d 312, 314 (2002).
70 Id. at 315-316
71 Black’s Law Dictionary 1428 (Bryan A. Garner ed., 7th ed., West 1999)
72 Black’s Law Dictionary 267 (Bryan A. Garner ed., 7th ed., West 1999)
73 http://www.investopedia.com/terms/i/index.asp
74 http://www.investopedia.com/terms/c/cashsettlement.asp
75 Chicago Mercantile Exchange v. S.E.C., 883 F.2d 537, 544 (1989).
76 Id. at 543.
77 15 U.S.C. § 78c
78 7 U.S.C. § 6c(b).
79 Chicago Mercantile Exchange v. S.E.C., 883 F.2d 537, 544 (1989).
80 Id.
81 Id.
82 Board of Trade of City of Chicago v. S.E.C., 677 F.2d 1137, 1142 FN 8 (1982).
83 Pub.L. No. 97-303, § 1, 96 (codified at 15 U.S.C. § 77(b)(1)).
84 William L. Stein, The Exchange-Trading Requirement of the Commodity Exchange Act, 41 Vand. L.Rev. 473, 505 (1988).
85 Ann Fabian, Card Sharps and Bucket Shops 188 (Routledge, 1999).
86 Id.
87 Id. at 478.41 Vand. L.Rev. 473
88 Cedric B. Cowing, Populists, Plungers, and Progressives 29 (Princeton, New Jersey Princeton University Press 1965).
89 http://www.nyse.com/Frameset.html?displayPage=http://apps.nyse.com/commdata/MFRMemberFirms.nsf/vwMemberListCat?openview&RestrictToCategory=A&Count=250
90 Rick Marin, Wall Street Babylon, New York Times (Feb 27, 2000) (available at 2000 WLNR 3220647).                 
91 http://www.investorwords.com/517/boiler_room.html
92 Edward Wyatt, Mutual Funds Report; A View of Wall St. From Its Shady Side, New York Times (Apr. 6, 2003) (available at 2003 WLNR 5195368).
93 Melody Petersen, Enforcement Chief Named at the S.E.C., New York Times (April 9, 1998) (available at 1998 WLNR 3017038).
94 J. William Hicks, Securities Regulation: Challenges in the Decades Ahead, 68 INLJ 791, 791 (1993).       
95 Id.
96 Id. at 792.
97 Id.
98 Id.
99 For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted security) or a security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) involving any such equity security within any period of less than six months, unless such security or security-based swap agreement was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, director, or officer in entering into such transaction of holding the security or security-based swap agreement purchased or of not repurchasing the security or security-based swap agreement sold for a period exceeding six months. Suit to recover such profit may be instituted at law or in equity in any court of competent jurisdiction by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the issuer shall fail or refuse to bring such suit within sixty days after request or shall fail diligently to prosecute the same thereafter; but no such suit shall be brought more than two years after the date such profit was realized. This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the security or security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) involved, or any transaction or transactions which the Commission by rules and regulations may exempt as not comprehended within the purpose of this subsection.
15 U.S.C. § 78p (2002).
100 Michael A. Harring, Robert J. Wild, Corporate Compliance Series § 1:102 (West 2003).
101 Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 477-78 (1977).
102 Principal is the main party to a transaction, acting as either a buyer or seller for his/her own account and risk.
http://www.investopedia.com/terms/p/principal.asp
103 William I. Friedman, The Fourtheenth Amendment’s Public/Private Distinction Among Securities Regulators in the U.S. Marketplace—Revisited, 23 Ann. Rev. Banking & Fin. L. 727 FN50 (2004).
104 $7 per trade at Scottrade, http://www.scottrade.com/; 7.95 per trade at Harris Direct, http://www.harrisdirect.com/; 6.99 per trade at E-trade, https://us.etrade.com/e/t/home?SC=LBH4249; or 17.95 at TD Waterhouse, http://www.tdwaterhouse.com/trading/index.html.
105 A board lot is a standardized number of shares defined by a stock exchange as a trading unit.  In most cases, this means 100 shares.  The purpose of a board lot is to avoid ‘odd lots’ and to facilitate easier trading.  It’s more difficult for a broker to find a buyer for, say, 17 shares, than if everybody agrees to trade in 100 share lots.
http://www.investopedia.com/terms/b/boardlot.asp
106 An odd lot is an amount of a security that is less than the normal unit of trading for that particular security.
http://www.investopedia.com/terms/o/oddlot.asp